Bill Cara's Blog for Feb 29, 2012

Repost from yesterday's discussion:

Submitted by Grym (4611 comments) on Wed, 02/29/2012 - 07:49 #105669 (in reply to #105660)

Here is a PDF of a speech this month by Robert L. Rodriguez which gives suggestions as to how the US has been and may be affected by the global debt/economic/political situation.

A few excerpts:

"…the current crisis for public debt appears to be more widespread and serious than that of 1932…"
"Greece, much like U.S. subprime before the last credit crisis, is the canary in the coal mine warning of the fundamental issues facing the Euro."

"Exhibit 5 below shows that U.S. total debt to GDP is nearly 350%, and this is before taking into account off balance sheet entitlement liabilities and guarantees that would bring it to more than 500%."

"Upon closer examination, 73% of the non-financial corporate pre-tax profit margin expansion resulted from lower interest (38%) and labor (35%) costs.(note 19) Furthermore, approximately 45% of the S&P’s revenues are internationally sourced, so European and Japanese recessions pose additional risks."

His views mesh quite closely with those of George Friedman, author of "The Next Decade".

I hope he is entirely wrong, but his reasoning seems to require a total realigning of US and global policies by the same people who have led us into this quandary.

Grym

Looks like bears were betting that 13,000 will not hold. These bears will be liquidated soon. I'm in 100% agreement with Geoff's prognostication.

Miners are still barely recovering from doldrums sentiment wise. However, the rapid loss of sentiments in dollar and yen is flashing some yellow lights, so proceed with caution.

FD: long miners.

AAPL - estimates, target boosted at Sterne Agee. Shares of AAPL now seen reaching $620, according to Sterne Agee. Estimates also upped, given higher expected demand for the new iPad. Buy rating.

MSFT - target raised at Nomura. Shares of MSFT now seen reaching $37, according to Nomura. Stock trends to trade well ahead of a new Windows launch. Buy rating.

everything is crashing after a good start. I didn't see it coming.

Edit: It's rebounding. Fortunately my stops were not triggered.

Yes but he hasn't really said anything he wouldn't say before

(US) Fed Chairman Fed's Bernanke: Spike in gasoline prices could temporarily push inflation higher, reiterates that longer-term expectations show inflation to remain subdued - semi-annual Monetary Policy Report
- Highly accommodative monetary policy stance meets both of the Fed's mandated policy goals.
- Believes that the Fed's dual mandates are generally complementary.
- It is not feasible to set a fixed goal for US employment levels.
- Reiterates that US economic growth in 2012 to be modest, Fed does not see more substantial declines in unemployment.
- The euro zone is still facing critical fiscal and financial challenges.
- Strains in the global financial system still pose a risk to the economic outlook.

Reiterates US needs to create long term fiscal sustainability; without it mounting debts could eventually lead to a financial crisis
- 10 year window Congress uses to evaluate budget planning could be problematic as many issues could arise beyond the 10 year time frame
- Pleased with the functioning of the financial stability oversight council (FSOC); supportive of basic goals of Dodd Frank legislation
- Fed has no official stand on mortgage reduction; still a large overhang of homes in the housing market.

Are your personal photos the next best thing to apple pie?

http://bits.blogs.nytimes.com/2012/02/28/tk-ios-gi...

picked up a few GLD may 162 calls, holding $.4 above buy and on short leash

Earl,

It always feels sooooo good to have a respected voice tell you to do what you have started to do.

"Unless you are a full time experienced trader playing with 'cool money,' stop trading. This market is far too thin and given over to gimmicks for the average person to participate. It really is.

Take long term positions that suit your investment situation, and then ignore the noise that the trading desks throw out to shake people from their positions, painting pictures on the charts to shape perception."

I have bought very little, but have been nibbling at stocks with safer yields (expecting a major pull back this year (or early next year with Obama in full destruction mode).

Grym

Hi Grym,
thanks much. My long terms are somewhat hedged with covered calls, I typically don't have time to day trade but sometimes I do.
Earl

The last month or so has been interesting to say the least. While the S&P500 and DJIA have been slowly grinding higher, the Russell 2000 actually peaked on February 3rd and has been lagging the other two since then. I generally use $RUT:$SPX as an indicator of momentum as small cap stocks generally outperform in a bull market.

What's gone on in the last month, it appears, is that the momentum has reversed but the S&P and DJIA have continued are very slow gradual grind up while small caps (Russell 2000) stocks are getting distributed. My suspicion is that retail investors only became convinced of the rally in Jan/Feb and thus have allowed for steadiness in the larger caps while smart money simultaneously has started distributing the smaller cap names that experienced a great run from early Oct11 to early Feb12.

I'm not saying a crash is imminent or anything but simply that we no longer have the momentum behind us that was there from Oct thru early Feb. I am continuing to be very conservative with most of the port in cash/bonds/utils since mid-late January. I am trading with about 10% of the port, trying to identify some beaten down names for shorter-term trades.

As for the long-term portfolio, I am waiting for a resolution of the $RUT:$SPX chart to suggest that $RUT has consolidated versus $SPX. Once that occurs, we just may be able to continue this bullish trend without fear of the bottom ultimately falling out. Essentially, I am looking for the technicals to suggest a greater margin of safety.

http://stockcharts.com/h-sc/ui?s=$RUT:$SPX&p=D&b=5&g=0&id=p39955802101

Saw a good commentary about 'money', gold and PMs, and 'tangible productive assets' (e.g. businesses) a synopsis of Buffett letter. Author felt Buffett saying PMs in the 'greater fool' category.

Anyway, didn't hear Bernanke, and with no disrespect, feel that most of what he says (aside from the completely wrong things) is just posturing/jawboning. I will give the devil his due, but the Fat Lady hasn't sung yet either re: long-term economic outcome.

Apple's market cap, at $500 billion, is more than Exxon-Mobil's (417 billion). This is an hyper inflated bubble, and the company has no room for disappointment.

There are stories out there that the AAPL delay of the iPhone contributed to the miss in Q4 but lead to the surge in Q1. In addition, the company had an extra week in the quarter. Experts are saying that the pent up demand that lead to the Q1 surge was a one-time event, and happen to fall during the best quarter for retail(Christmas).

Going forward AAPL is going to have to spend more $ on R&D to compete with Samsung (Galaxy)and Motorola (Razr) which will eventually lead to margin compression.

AAPL is a great company, but I don't believe their market cap will remain above Exxon's too much longer. In short, I believe AAPL's market cap of $500 billion will be below XOM's $417 billion sometime in the months ahead.

Dumped all my miners Hoping to re-load MUX @ 4.25 gap. Long TZA time will tell, so for so good.

Former Cara 100 member, FSLR, had a bad earnings report today and lowered its earning forecast for 2012. First Solar is down over 11% today.

Nice call, dumping this one, Bill.

Grym, what do you consider stocks with safer yields these days? I'm looking for decent buys with decent yields. Everything looks high-priced to me.

No chart, haven't made a screenshot, so have a look at FCX intraday for the visual - but wanted to offer you this discussion of a trade. Scroll down to 14:41 for the call itself and then from 14:59 to the end of the day to follow a discussion.

http://tradinglog.realitytrader.com/2012/02/feb-29...

More Liquidity Extraction: Fed Resumes Reverse Repos
Submitted by Tyler Durden on 02/29/2012 13:46 -0500

Ben Bernanke European Central Bank Precious Metals Russell 2000

Dumping yet another liquidity cold shower in the aftermath of today's less than dovish Humphrey Hawkins speech by Bernanke (and sending precious metals even lower, albeit briefly), is the Fed's resumption of even more purely optical liquidity extractions, however symbolic, in the form of reverse repos, after the NY Fed just completed the first such operation since the dark days of summer 2011. As a reminder, the last time the Fed did these was back in August 2011 which cemented the market's plunge as it gave the market the impression that at least superficially no more money was coming in (intuitively it makes no sense to have Reverse Repos running at the same time as incremental liquidity), even as the reliquification baton was quietly being passed to the ECB. Today, reverse repos resume, as the Fed pays Primary Dealers an annualized rate of 0.17% in exchange for lending out $100 million in Treasurys. Will this continue? It depends entirely on what the economy, pardon, the Russell 2000 does. After all, that is the third and only mandate of the Fed that matter. And if the market considers this an indicator that QE3 really is delayed indefinitely, the FRBNY will mostly likely be forced to reassess.
http://www.zerohedge.com/news/more-liquidity-extra...

I saw an interesting analogy about the topping process from a comments section (by someone called Ewtman ) in Marketwatch regarding Bernanke's discussion's today.

"Both the S&P 500 and the Nasdaq made new highs the last few days on negative breadth. That is the sign of a major top. If you don't understand that, it simply means more stocks lost value than gained yet the price of the index increased.

"How could this happen?" Think of the index is an Armada of ships given the order to reverse course. The smaller destroyers and cruisers can turn on a dime but the carriers and battleships take a while to lose forward momentum. In the mean time, battleships like Google and Apple are holding the markets up as they slowly lose momentum. But lose it they will.

An inflection point was reached early this morning and the Armada is headed down. Most of the smaller vessels are already headed the other way. Once the market realizes the battleships have turned, the momentum to the downside will accelerate with a ferocity not seen since 2008.

Fasten your seat belts. If you are having trouble believing the ride is over, at least hold on to the hand rail."

http://www.marketwatch.com/story/bernanke-sees-dif...

bonds today... Spain is looking not to good.... funny that copper dropped only a little more than 1% when gold and silver were getting trashed... Fleck update.

Geoff highlighted this massive injection this morning but here some reinforcement and commentary ...

Sinclair via KWN:

"The ECB made $712.4 billion in low interest loans to the member banks. This is the second round of massive credit infusions that has been credited with the easing of the eurozone debt crisis ...

Today does qualify as one of the biggest injections of liquidity into the system in the history of the system. Today was a cover-up by the US Federal Reserve and by the mainstream media of one of the largest injections of liquidity into the system that has ever occurred."

http://kingworldnews.com/kingworldnews/KWN_DailyWe...

Well, that explains the smackdown now doesn't it. That's $712.4 billion from the Fed to the IMF to the ECB to the member banks as described in the interview. That's a lot of QE folks!

http://www.youtube.com/watch?v=vyljNfQUu5A

Vad -

Greece knows that holding out will produce better terms so I don't expect the Greek politicians to accept the terms of this second deal generated from these 15 a##holes until ... March 20 or a few days before. Of course, the terms will not allow full 'default' on the bonds because it would take the banks down and the same said 15 will be marked for certain death. Maybe the holders of the CDOs can take title to the Parthenon or accept the proceeds from a special olive tax for the next 500 years if they tear up the options.

Anyway, you're right, March 20 is just a date and only that 'secret panel' will control the outcome of that arbitrary deadline. But that outcome will ultimately be judged by the Greek people. Let's hope with round two they accept more austerity in a non-violent manner ...

Cheers.

New advances in laser research deep sixed , decision to forgo next generation lasers and accompanioning raises in standards of living left to others . http://tinyurl.com/89mlcfb

thanks Vad and a thanks to Dr S for the comments today. It's amazing how well this system is holding up given all that's going on in the world today. When Bernaq can go on the media today, basically saying/doing nothing it seemed, and PM's get hammered! Amazing!

Some curious things about today's sell off in PM.

Oil dropped 2%, but rebounded, ending flat - a non-event. The equity market dropped less than 1%. Copper dropped 4%, but then bounced back to close down only 2%. Gold was off 5.5% and rebounded slightly, Silver was off 9% peak to trough, rebounding to only down 7%. Why was it that PM was taken to the woodshed, and the variety of other risk assets (that are also liquidity sensitive) were only modestly affected?

Gold has climbed more than $250 since the bottom in Dec 2011. Various estimates of LTRO in the press ranged from half a trillion to a full trillion euros. Reality came in at the lower end. Bernanke didn't mention imminent QE - perhaps the prospect of Ron Paul waving silver dollars at him and talking about competing currencies has had some effect? Cartels certainly don't like the prospect of competition, especially if the competition has a better product.

So, LTRO wasn't as exciting as theorized. Bernanke isn't printing immediately. Gold up $250 in a few months time. Perhaps this combination resulted in some players removing their bids, and at that moment conditions were ripe for a large seller of paper gold to enter the market and cause a big move down. I'd guess this move rapidly cleared out a bunch of long speculators (If you look at the volume spikes on GC futures yesterday, you'll see decreasing volume with each new low) and now we're back to fundamental buyers providing their slow and steady support.

Interesting side note: Ron Paul said that until we get rid of sales taxes and income taxes on the sale of PM, it won't be a competing currency in the US. So while on one hand he says it's "honest money", it is clear that as long as selling gold results in a taxable event to the seller, it isn't currency.

Ventilation Blues,

"Most depressing was MUX, which I seriously wish I could dump."

Of course I don't no the details as to why you can't dump MUX, but I will simply tell my experience.

I have dumped all investments and gone to cash three times in ten years. (Well, three totally and one I kept my gold bullion.) The worst was in 2000 when my mutual funds dropped 30% in just three months. (small, medium and large cap — but each had all the same major tech stocks in them — Cisco, Intel, Apple, etc... I found this out with the first quarterly statement and "Goodbye".)

Each time I refocused and made my losses back in less than a year. It may just be my nature, but if I am fretting over a single problem, I'm far less able to focus on the larger goal.

Just something to consider.

Best wishes.

Grym

Kaimu,

"Quit with the short term mentality when it comes to the POG and monetary issues is my recommendation. Trillions are in play globally every day and the gold and silver markets are among the smallest in terms of dollar volumes moved daily.

There are more money injections in play than the US Fed and its QEs. We just got a $1.2TRIL "debt injection" at the US Treasury. Tell me what is the difference other than the "assets" purchased? I use the word "assets" loosely in terms of "quality"."

Two excellent points.

First point: The short term thinking can be applied to many issues. Nearly all "good news" is short term comparison while long term we are getting killed —
• Inflation: my first new car in 1964 = $2,400 and today $24,000 for my 2004 model.
• Jobs — phony data at 8%, millions no long counted

Nearly all MSM/administration "News Flash" stuff is purely a distraction.

Second point: We cannot ever be sure how much money is transferring literally at light speed or where it is going. "Asset" and other commonly used words have multiple definitions artfully nuanced and are seldom questioned.